where orders emerge

Perspective on Trade

Let’s clear up a misunderstanding that I sense in some of the comments to this earlier post (and this related one): I know of no serious economist who ever argued that free trade hurts no one in any way. But let’s also be clear that this truth is supremely banal. Of course freer trade almost surely reduces, at least for a time, the incomes of some producers, but such a downside is in no way unique to trade. It is true of almost any economic change and of competition. (See my earlier posts, here and here.)

When the population ages and buys fewer baby diapers and toy rattles, some workers in diaper and rattle factories are likely harmed. When computers replace typewriters, some workers in typewriter factories are harmed. When the latest fad diet sweeps the country, some producers and retailers of the newly verboten foods are harmed.

The genuinely deep thinker grasps at least two important prongs of wisdom on this front: First, the fact that economic change causes some immediate losses to some persons does not, standing alone, create a presumption in favor of skepticism, or even of agnosticism, toward economic change — a skepticism or agnosticism that mindlessly intones that the reality of such losses must in any real-world case be weighed against the benefits in order to "see" if economic change is good or not good. Second and relatedly, the immediate consequences of economic change are not the only consequences; the long-run consequences are real and they matter; they, too, must be reckoned when we make claims about economic change and policies proposed to govern it.

About the second fact: I argued earlier at the Cafe that the longer the run, the more universal are the gains from free trade. By being part of an open economy driven by entrepreneurs pursuing profits by searching for new and better ways to serve consumers (who, in turn, largely are free to spend their incomes as they wish), even those persons who lose today because of a change in consumer spending patterns almost certainly gain over the long run by being part of such an economy. The very job that a worker today loses because of an increase in international trade might well have been created in the first place by international trade. For example, the U.S. steel worker who loses his job today because American consumers are buying more steel from abroad might well never have had that job to begin with were it not for trade in the past that allowed foreigners to acquire dollars in order, in the past, to buy steel made in the USA.

About the first fact: In 1998 I met a gentleman from Jackson, Mississippi (whose name I regret that I forget), who discovered a new means of shipping automobile tires. I don’t recall the details, but this creative entrepreneur devised a procedure that, unlike in the past, permits tires to be compressed during shipping without being damaged. The result is that a truck or freight car carrying new tires can today carry ten times as many tires as before. It’s quite likely that this invention has “destroyed” the jobs of a handful of truckers – persons not at the top of the heap of American income earners.

Would any economist today argue that “I’m no opponent of technological innovation and greater capital investment. But those textbook theories that show that market-driven innovations and investments make society wealthier do not – contrary to what some people assert – show that everyone is made better off by such innovations and investments. Some people are harmed. So, again while I’m no opponent of technological innovation and capital investment, I am for an end to the finger-wagging accusations that those who worry that innovation and greater investment will hurt workers don’t understand economics. Those who worry that innovations and greater investments will hurt ordinary workers have a point and deserve some respect.”?

Would any serious economist be sanguine about politicians who talk about limiting Americans’ ability to innovate and invest?